BRASILIA, May 14 (Reuters) - Activity in Brazil’s services sector fell 0.7% in March from the month before, government statistics agency IBGE said on Tuesday, a decline far greater than expected and another strong sign that the economy contracted in the first quarter.

The 0.7% drop in activity was substantially bigger than the median forecast in a Reuters poll of economists of a 0.1% decline, and brought the accumulated decline in the first quarter to 1.7% compared with the October-December period.

The IBGE figures dovetailed with IHS Markit purchasing managers index data last week that showed Brazil’s services sector, which accounts for around 70% of the overall economy, shrank in April for the first time since September last year.

They also come on the same day that minutes from the central bank’s May 7-8 policy meeting showed policymakers admitting that recent data suggested the economy may have shrunk in the first quarter, potentially tipping it closer to recession.

On an annual basis, IBGE said the volume of services in Brazil fell 2.3% in March from the same month last year, the biggest fall since May 2018 and again much more than the 0.8% decrease predicted in a Reuters poll.

It was the first year-on-year decline in eight months, although IBGE pointed out that there were two fewer working days in March this year, which contributed to the reduction in demand for services.

In March, the largest decline in activity was a 1.7% fall in communication and information services, while a 7.1% decline in transport and related services was the biggest drag on a year-on-year basis, IBGE said. (Reporting by Jamie McGeever; Editing by Steve Orlofsky)